It sounds like the sort of gruesome tactic deployed by Islamic terrorists in Iraq. But this horrific scene occurred last month near the main road from Mexico City to the popular tourist destination of Acapulco on the Pacific coast. The soldiers were kidnapped as they left a nearby military barracks and then decapitated in apparent revenge for an army firefight with a narcotics gang in a nearby town that left three drug smugglers dead.

A soldier patrols the Grand Hotel after a shooting in Tijuana, Mexico

Mexico's rapidly escalating drug wars claimed nearly 6,000 lives last year in a country more commonly associated with sun, sand and ancient ruins than narco-terrorism. Much of the bloodshed is concentrated along the US-Mexican border, where the violence is spilling across the 2,000 miles of shared frontier. Beheaded and mutilated corpses and mass graves turn up on a near-daily basis, often in the heart of cities such as Cuidad Juarez and Tijuana, once-thriving border communities that are now the terrifying fiefdoms of the cartels.

In a report last month that sent shock waves through Washington, General Barry McCaffrey, US drug tsar under President Bill Clinton, called for the new Barack Obama administration to focus on the security threat along America's southern border.

"Mexico is on the edge of the abyss – it could become a narco-state in the coming decade," he wrote, following a trip to the country by US intelligence and security specialists. "The violent, warring collection of criminal drug cartels could overwhelm the institutions of the state and establish de facto control over broad regions of northern Mexico. [It] is not confronting dangerous criminality – it is fighting for survival against narco-terrorism."

The dramatic surge in drug-related killings last year – with more than twice the 2,700 death count for 2007, the country is now more dangerous than Iraq – has two explanations.

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The long-established Tijuana and Juarez cartels are locked in a murderous battle with the rival Gulf and Sinaloa faction for control of the world's most lucrative narcotics smuggling routes – supplying US markets with cocaine from South America and marijuana and methamphetamine grown and manufactured in Mexico. The turf war has spiralled dramatically as several long-established drug kingpins have been captured and murdered and some younger lieutenants have defected or formed new alliances with former enemies.

At the same time, President Felipe Calderon, who was elected in 2006 on a pledge to tackle narco-terror, has launched the first effective crackdown by the federal authorities against the cartels. With local police and officials either in the pay of the gangs or too terrified to act, Mr Calderon has dispatched thousands of troops and national police units to the worst affected areas.

But they are drastically outgunned by platoon-sized units equipped, according to Gen McCaffrey's report, with night vision goggles, electronic intercept equipment, mini-submarines, helicopters, rocket-propelled grenades, anti-tank weapons and land mines.

In Tijuana, less than a mile from the border, armoured personnel carriers containing heavily-armed troops are now patrolling a main street once packed with US tourists. The gangs have copied the terror tactics of Islamic extremists – torture and decapitations – in a brutal effort to intimidate their foes in other cartels and Mexican law enforcement.

And the crackdown is undermined by endemic corruption as the cartels have bought access to the highest levels of Mexican law enforcement. The country's top anti-narcotics official Noe Ramirez was arrested recently, accused of receiving $500,000 a month from one gang for passing on intelligence, some of which came from drug agents at the US embassy.

It is little wonder that President-Elect Obama chose to meet Mr Calderon over a lunch of tortilla soup this week, in his first talks with a foreign leader since he won November's election.

US intelligence and private security firms have warned that American businessmen and diplomats could become the next targets for the narco-gangs, as they deploy terror tactics to try and defend their turf. Indeed, the FBI believes that chief drug cartel hitman Jaime "The Hummer" Gonzales was planning a bloody confrontation with US law enforcement when he was snatched in a raid in the border town of Reynosa, along with the biggest arms seizure in Mexican history. He had stockpiled the weapons and ordered dozens of hit men just across the border from McAllen, Texas, ready for the intended showdown, according to an FBI report. US intelligence has also received information about plans to bomb American consulates and businesses in Mexico and to kidnap US officials, businessmen and journalists.

The upsurge in violence is regarded by the US and Mexico as a sign – however bloody – that the Mexican crackdown on the drug cartels is having an impact. In a recent interview with the Dallas Morning News, Tony Garza, the US ambassador to Mexico, said: "Calderon must, and will, keep the pressure on the cartels, but look, let's not be naive – there will be more violence, more blood, and, yes, things will get worse before they get better. That's the nature of the battle. The more pressure the cartels feel, the more they'll lash out like cornered animals."

On Mexico's side, there is anger that this is viewed as a "Mexican problem", when an estimated 90 per cent of the weapons used by cartels are smuggled from the US and the gangs are fighting to supply drug users north of the border.